I write about the Internet technologies and upstarts that are disrupting advertising and media faster than ever. I'm living this disruption, so I might as well write about it, too. I spent nine years as chief of BusinessWeek's Silicon Valley bureau writing about the leading edge of technology and business, and I continue to do so for a variety of publications. Follow my posts here by clicking the "+ Follow" link under my name. You can also find me at my personal Web site RobHof.com, follow me on Twitter (robhof), Circle me on Google+, subscribe to me on Facebook, and email me (robert.hof@gmail.com).

Facebook's New Advertising Model: You

Social Network Crunches Data to Woo Big Brand Advertisers From Television

Facebook Chief Executive Mark Zuckerberg doesn’t talk much about his company’s advertising business, even when it invents new kinds of ads that could disrupt a chunk of the $500 billion influence industry. So it was up to David Fischer, who left a star career at Google early last year to run Facebook’s advertising business, to make a pilgrimage to Advertising Week, a weeklong annual confab of marketers in New York in October. His goal: to draw big brand marketers whose mainstay ad venue is television onto the world’s largest social network.

What he showed during his speech was something blandly dubbed “Expanded Premium Ad.” It’s simply a short post—“Rolling Stone calls Ides of March ‘A big bruising thriller’”—transformed into a right-hand-side ad that goes to a targeted audience. “Honestly, it doesn’t look that interesting,” Fischer conceded during his address.

Then he described one small wrinkle: If your friend Jim has clicked the “Like” button back on Columbia Pictures’ fan page, a line of text will pop into the ad saying “Jim Squires likes Ides of March” alongside his photo. People are twice as likely to remember an ad if their friend is in it, according to the Nielsen Co., and they tend to click on it or share it with friends more often than they do plain-vanilla display ads. What’s more, their intent to purchase rises fourfold when they see “social” ads like this. Twice the recall. More clicks. Quadruple the purchase intent. More products flying off the retail shelves. These are not uninteresting concepts to marketers.

On the surface it’s puzzling that Facebook feels the need to prove itself to Madison Avenue. With an audience of 800 million worldwide, the social network will double its ad sales this year, to $3.8 billion, according to eMarketer. But the way Fischer is pitching to advertisers, with a focus on the results and not the flash, is very telling. If Facebook is going to justify its $80 billion private valuation—let alone the initial public offering widely expected next year—it will have to show brands how these purposely plain ads will deliver the goods. “The best ads on Facebook are the ones that are most consistent with what’s already being done on Facebook,” says Fischer. Indeed, but for the tiny “sponsored” label above them, you can hardly tell they’re ads.

A lot of brands, however, aren’t yet convinced. Facebook ads are clicked on only once every 2,000 times they’re viewed. Typical banner ads are clicked on twice as often. Google search ads are clicked on 40 times as often. By most accounts brand spending on Facebook has been focused on getting people to become fans of their Facebook pages because, well, everyone else was and they didn’t want to appear clueless. Fan campaigns aside, just 12% of marketers and agencies in a recent survey by the ad tech firm Collective thought social media such as Facebook works in an ad campaign.

There’s so much activity on Facebook that marketers aren’t sure what correlates with common advertising gauges such as brand awareness and propensity to buy. Facebook fan count? Ad clicks? How many times people shared a post on a brand’s Facebook page? “It’s the biggest question our clients ask: ‘Is that a good number?’” says Sarah Hofstetter, who as senior vice president of emerging media and brand strategy at the digital ad agency 360i helps companies such as Coca-Cola and Kraft manage marketing on Facebook.

To make its numbers Facebook is crunching them. Dozens of data geeks are hunkered down in a nondescript building nicknamed “1050” for its address on Page Mill Road in Palo Alto, Calif. They’re mining the 250 million photos shared and the 100 million likes per day. They’re looking for clues as to which kinds of ads and other marketing work best on this new canvas—and how it all compares with other media. The overriding goal, says Brad Smallwood, Facebook’s head of measurement and insights: “We want marketers to know that when they invest in Facebook and in online in general, they’re going to see measurable impact in the same way they know TV works.”

Social media offers tantalizing new possibilities for getting consumers’ attention in ways that are strikingly different from search and display ads, the two dominant forms of online advertising. Those older forms are, to varying degrees, aimed at prompting immediate or near-term transactions, but the biggest ad spenders want to create a long-term affinity for their soap, cars or beer. Most products are still bought in physical stores well after the ad was served. That’s why marketers still love TV, where they can tell their stories in a setting where people are relaxed and receptive.

Television didn’t take off as an ad medium until it moved from ads showing people reading a radio script to forms of advertising that fit the medium. Facebook needs to find the social media equivalent of the 30-second spot. It’s starting to do so by converting the primary gesture of social media—sharing—into something potentially even better for branding than TV ads: a supercharged version of word of mouth. It’s the most valuable form of marketing but tough to build quickly and even tougher to control.

Facebook demolishes those limitations. People have an average of 130 Facebook friends, so when they “Like” a brand that endorsement spreads instantly to the news feeds of many of those friends—who then may spread it further to their friends, potentially building to millions of people in a flash. Mars Chocolate North America, for instance, seeded demand before last year’s launch of M&M’s Pretzel by offering samples through a virtual vending machine to 40,000 fans, who each could spread the offer to two of their friends. In less than 48 hours 120,000 samples flew out the door.

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